LONDON British mobile operator Vodafone's (VOD.L) deal to buy Cable & Wireless Worldwide CWP.L for an agreed 1.04 billion pounds hit a hurdle on Monday when CWW's top shareholder declined to back a bid it considered too low.
The world's biggest mobile phone operator by revenue wants CWW for its fixed-line network, which could be used to relieve the strain on Vodafone's wireless operations from data-hungry smartphone users.
The 38 pence-a-share deal would also make Vodafone a leading player in fixed-line and mobile telecom services to Britain's businesses, and it could make cost savings by using CWW's networks, both in the UK and internationally.
"There is a good overlap between Cable & Wireless' fibre network and our base stations, which will significantly reduce the cost to us of managing the growth in data traffic," Vodafone Chief Executive Vittorio Colao told reporters.
Investment firm Orbis, which owns 19 percent of CWW, however, said the offer did not reflect the value of the British corporate telecoms specialist nor the benefit to Vodafone.
"We have declined to give an irrevocable undertaking or letter of intent to support the transaction," a spokesman said.
He would not say what price Orbis was looking for, but hedge funds have told Reuters the investor wanted 40-45 pence.
Vodafone needs support from shareholders owning 75 percent of CWW to proceed with the deal in its current form. It has secured acceptances from 18.6 percent.
Vodafone's offer is a 92 percent premium to CWW's share price before it declared its interest in February.
CWW's stock has been ravaged by three profit warnings and a suspension of dividends, and the price agreed is a fraction of the 98.5 pence it reached in March 2010 when splitting from Cable & Wireless Communications CWC.L.
It has blamed a faster-than-expected drop in voice revenue, intense competition in data services, and government cutbacks for its woes, which have cost two chief executives their jobs.
Shares in CWW were 13.5 percent higher at 36.3 pence by 1518 GMT, reflecting shareholders' relief that a bid had materialised after Vodafone was granted three extensions by the UK's Takeover Panel. Vodafone's shares were flat.
"(The deal) is positive for Cable & Wireless because there was still some scepticism in the market Vodafone would bid," said Espirito Santo analyst Nick Brown.
Colao said the deal would make Vodafone the second-largest telecoms supplier in the UK after BT (BT.L), and would double the size of its business serving corporates and government.
Vodafone can use CWW's 20,500 kilometres of fibre cables to shift data from its wireless network, which is under strain as more and more people use data-hungry smartphones.
The mobile giant rents fixed lines for such capacity -- a process called backhaul -- from the likes of BT.
UBS is acting as sole financial adviser to Vodafone. Barclays and Rothschild are acting as joint financial advisers to CWW.
(Editing by David Hulmes)